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What is ERC20? Contents of the ERC20 Token Standard Rules

Ethereum is the foundation for many popular utility tokens and decentralized finance applications. If developers want their tokens to be accepted by the network. What is ERC20? Let’s talk about ERC20 Token and its standard rules in this article.
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trangtran.c98
5 min read
Published Sep 30 2021
Updated Apr 05 2024
what is erc20

What is ERC20?

ERC20 is a technological blockchain standard for creating and implementing Ethereum-based tokens. ERC20 was proposed by an Ethereum engineer - Fabian Vogelsteller in November 2015. The standard lays out a set of guidelines that must be followed in order for a token to function effectively in the Ethereum ecosystem.

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The ERC20 standard makes it easier for developers to estimate the interaction between various tokens and applications with more accuracy. It also specifies how ERC20 tokens are moved on the Ethereum blockchain, as well as how their supply and address balances are being recorded consistently.

ERC20 Token Standard Rules

Compulsory regulations

In terms of implementation coding for ERC-20 tokens, the six basic coding functions are:

Total Supply: Outline the total number of tokens to be created.
Approve: Help eliminate the possibility of counterfeit tokens being created by requiring approval of smart contract functions.
Balance Of: Return the total number of tokens held by an address, allowing users to check their balances.
Transfer From: Allow the automation of transactions when desired.
Transfer: Allow transfer tokens from one address to another, like any other blockchain-based transaction.
Allowance: When a smart contract executes a transaction, it has to be able to see the balance held by the Ethereum wallet trying to transact. The allowance function allows the contract to carry out the transaction if the user has sufficient balance or cancel the transaction if they do not.

These six rules must be programmed into a token for it to be considered ERC20. Without precise instructions for these norms or standards, the token would be unable to communicate successfully with smart contracts, causing a slew of issues.

Users can check balances, transfer assets, and authorize other DApps to manage the tokens by checking the total supply.

ERC20 tokens' adaptability is a significant element of their attraction. The established protocols do not impose any limitations on development, so developers can add new features and specify particular parameters to meet their needs. Here are a few notable ERC20 token applications:

Manage tokens of the projects.
Utility tokens of projects DeFi.

Optional Regulations

Token name.
Symbol.
Decimal (up to 18).

Advantages and disadvantages of ERC20 Tokens

ERC-20 tokens, like any other financial instrument, are unlikely to function perfectly straight away. Despite the fact that they are becoming more popular every year, there are some advantages and disadvantages to be aware of.

Advantages of ERC20 Tokens

Fungible: The ERC20 tokens are more fungible than most of the traditional cryptocurrencies. As each unit is interchangeable and identical to another of the same type, it can be traded between users freely while maintaining its core functionality at all times.
Flexibility: The ERC20 tokens are highly configurable and can be used for a wide range of purposes. They're simple to use and integrate with other apps, and they're built on the Ethereum blockchain. Businesses and individuals can benefit greatly from ERC-20 tokens. ERC20 tokens, for example, can be used as money and traded in AMMs, or transmitted to Lending platforms to earn interest,...
Popularity: The fact that ERC20 is so widely used in the crypto world is one of the key reasons why it should be considered as a common standard. A lot of exchanges, wallets, and smart contracts already support ERC20 tokens. In the future, there will be more and more developers and documentation using this standard to develop their products as well as the crypto market.

Disadvantages of ERC20 Tokens

Scalability: Scalability is a major issue for Ethereum, as it is for many other blockchain networks. With the current state of Ethereum's scaling problem, sending a transaction at peak hours might easily result in excessive fees and delays. This has a severe impact on the ERC20 token's usability.
Fraudulent risk: While not due to the technology, the ease with which new tokens are legitimate to be launched can be considered as a disadvantage of ERC20 in some ways. It is now incredibly simple to create an ERC20 token, which means that anyone, for good or bad, can do it.

There are currently numerous scam projects that use a multi-level Ponzi scheme to pretend themselves as long-term builders. As a result, users should be cautious about their own investments.

How to issue ERC20 Tokens

Users can use Token Issuer on Coin98 Exchange to issue ERC20 tokens conveniently and promtly.

Token Issuer is a special tool that enables both Coin98 Exchange & Coin98 Wallet users to issue tokens on their favorite blockchains or even carry their names at their disposal. Currently, Coin98 does not charge any service fee on this tool, users just need to pay the network fee (gas) and immediately possess their own tokens in just a few minutes with no coding experience.

Step 1: Visit the link: terminals.coin98.com/issuer

Step 2: Select the Ethereum network. The system would find the respective chain's wallet.

Step 3: Fill in the following information:

Token name: The name of the token.
Token symbol: The symbol of the token in upper case (cannot be more than 5 characters).
Total supply: The total amount of tokens to issue.
Decimal Points: The number of decimal places in the token's unit.
Token Burn & Token Mint: Users can consider two options when issuing the token. Choose or not choose both options are optional but bear in mind that if users don't choose any, the initial aggregate supply will not be allowed to change.
Token logo: Click on the plus icon to upload the token's logo.
Owner Address: The address receiving the issued tokens. The system will automatically fill in the connected wallet address or you can use another wallet address.

Note: When issuing, the token issue fee is still charged on the connected wallet. To change the address of your connected wallet, follow these steps:

Select the wallet address on the top right corner of the screen.
Select the wallet you want to connect.
Click Issue.

Step 4: The system will ask users to pay a network fee to issue tokens. Users need to prepare enough fees for this step. If you agree, click Confirm on the pop-up confirmation.

There will be a pop-up announcement at the bottom right corner to redirect users to view their token information.

Conclusion

This article has provided a comprehensive overview of what ERC20 is, as well as some prominent examples for this topic! If you find it useful, please share it with your friends!

Let us know what you think in the comment section below!